The magic of trading money management OR How to covert a small account (or a large one) into a money spinner!

Transcription

1 The magic of trading money management OR How to covert a small account (or a large one) into a money spinner! The purpose of this tiny E-book is to show you what can be achieved with a small (or large!) trading account with the correct money management and a profitable trading performance. Read this book through and then read our open challenge at the end. This book is only 10 pages long, but what is contained in here is of utmost importance to you, if you want to make a success of trading. The sad fact is that most traders fail to make money, or even survive the first few months of trading due to two factors: 1. A poor trading system. 2. Poor money management We can provide the first one for you that s the easy part! However, the second part is even more important and I want to show you what you can achieve if you do things the right way and if you follow a systematic money management approach. I have prepared some Excel spreadsheets to show you how you can convert your small trading account into a substantial sum of money if you have a profitable trading system or profitable signals and if you know the three Keys to making money in Forex trading. But before we go through the spreadsheets, let s briefly cover the three Keys to making money in trading Forex. Key number 1: Managing risk per trade Key number 2: Managing risk per account Key number 3: Compounding profits

2 Ok, so let s go through these keys one at a time. Let s say you were able to get your hands on a profitable trading system or someone was willing to send you profitable trade alerts. Would this mean that you would automatically make money trading your account? No way! The problem is that, as hard as it is to learn how to trade the market, it is even harder for most people to manage their account. This is mainly due to inexperience and wrong, emotional decisions. I can t help with the emotional side (although there are some excellent books on the psychology of trading at but what I can help you with is gaining experience in converting a winning trade system or signals into money in the bank. It s all about money management. Key number 1: Managing risk per trade Trading involves risk. Every trade we take has a chance of being a winner and a chance of being a loser. There is simply nothing that will ever change that No-one knows where the market will go next with certainty. What we can do is to develop systems which give us an edge of better than 50:50, and the systems we use win about 65-70% of the time. The other 30-35% of the time the trades are losers. This does not make the losing trades bad trades, but it simply means that the trades fell into the good, but losing group. When a trade goes against us, the best thing to do is to close the trade for a relatively small loss and to wait for the next opportunity. Many novice traders tend to hold onto losing trades, or even add to losing positions. This has a terrible effect on your account equity, risk of losing more and your emotional well being. Anyway, I don t want to dwell on this subject, but I must stress that if you follow a trading system or signal, follow it precisely. Do not risk more than the pip stop loss employed and do not add to losing trades. More about that later

3 Key number 2: Managing risk per account Forex brokers will offer you 100:1 and even 200:1 leverage, promising that these offer opportunities to easy and quick riches. Don t believe it for one minute! When you leverage your account, you are actually borrowing money from the broker with the hope that your trading will make you money on the borrowed funds. It s the same as taking a loan from the bank and gambling it in your trading account. A little leverage is OK it makes sense to make money using other peoples funds, but too much will lead you to disaster quicker than you can blink. Here it is: As a rule of thumb, I recommend no more than 5:1 leverage on your trades. That means for every $10,000 in your mini account, you should trade no more than 5 mini lots, or for every $100,000 in your full trading account, you should trade no more than 5 full (100k) lots. Of course! But can you make money at this leverage? I will show you later how this modest leverage can be used to convert your account safely into many multiples of the initial balance, if traded wisely.

4 Key number 3: Compounding profits The power of compounding is simply amazing. Compounding means that you re-invest some or all of each months profits back into your trading account and you use the profits to generate more returns. The only way I can show you the power of this process is in real numbers, and I intend to do just that right now. Trading plan for our signals to explode the profits in your account! First of all, let s look realistically at what we at Forex618.net have achieved in terms of pips per month. This will be our starting point for the calculations. The results of our signals since October 2005 are shown in the table below: (Incidentally, all these results are verifiable from broker's accounts more on that at the end) Results in pips: Month Total Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov +326 Dec +424 Tot The average pips-per-month is roughly 250, with some months over 400, and one losing month of We need to know what to expect before we can make any projections going forward. Please remember though, that past performance is no guarantee of future returns, and the risk disclaimed at should be read and understood before proceeding. Now we know the expected returns in pips, we know that the leverage should not be more than 5:1 on your account, and we know that the trading system works and should be followed as it generates signals (no moving stops or adding to losing trades!)

5 What will this generate on our account? The spreadsheet below gives us Scenario 1 Conservative returns of 200 pips per month and no drawdown months. Take a look

6 Scenario 1. Conservative returns, no drawdown months Monthly pips 200 Leverage 5 month # starting balance pips leverage pos size mini lots profit $ profit% end bal sub final

7 This scenario is based on 200 pips per month and no losing months, at a 5:1 leverage. We have already discussed leverage, but let me remind you that this means 5 mini lots per trade position per $10,000 in your trade account, or 5 100k lots per trade position per $100,000 in your full account. As you can see, I have even allowed for a deduction of $100 per month for subscription fees to Forex618! The account grows from a starting balance of $10,000 to a final balance of $88,200 after two years! Yes, that s eighty eight thousand two hundred dollars after two years! This has been achieved at a conservative 200 pips a month with a very safe leverage of only 5:1, and you can see that most of the growth has come about through sensible growth and re-investing profits at a safe rate of return. That s the power of compounding! Note how the number of lots traded grows as the account balance grows, enabling you to make more money from the money you have already made. If you push the projection out for just one more year, the profits are an amazing $274,200!! Well, if only it were as simple as that. The problem is that not every month is a winner (although 90% are at this time) and we don t make 200 pips every other month. The good news is that we actually make over 300 pips per month most of the time, and the bad news is that we must allow for losing months. Ok, so let s look at scenario 2 a more realistic picture of what might be achieved. I have changed the winning months to 300 pips each (compare this to the actual results in the table on the first page) and have also allowed for three losing months of -350 pips each. Let s look at the more realistic Scenario 2:

8 Scenario 2. Intermediate returns, 3 drawdown months Monthly pips 300 Leverage 5 month # starting balance pips leverage pos size mini lots profit $ profit% end bal sub final

9 Note that Scenario 2 produces $95,000 in the 24 month period. That s a return of $85,000 on an initial investment of only $10,000. And that s allowing for three losing months of 350 pips each (we have only had one so far) and an average winning month return of 300 pips (ours is currently about 325) OK well, there you have it. How to transform a small trading account into a much larger one using sensible money management and a profitable trading system. I would very much like to help you achieve the same. Consider these facts: 1. We have achieved every pip stated in our performance table. In fact the results can also be seen at where you can also verify our results through actual brokers statements provided by 2. The scenario tables above, which show you can multiply your account over and over again, are simple maths no gimmicks and no tricks as long as you can stick to the trading signals and keep your head! 3. If you apply the 3 simple disciplines we have mentioned in this little E- book, and use our signals, you have a good chance of converting your account into a genuine money spinner! Of course there are no guarantees, and there is always a risk, but we have shown it can and is being achieved. 4. On your own, you may struggle to produce profitable trades. With Forex618, you will have the best possible chance of making money from the Forex. And it will only cost you a small fraction of your trading profits that s why we even took them off the profit examples on the Excel sheets above. OPEN CHALLENGE AND OUR GUARANTEES OF QUALITY NEXT PAGE!

10 OPEN CHALLENGE We know that what we have shown you is possible we have already done it. The question is can you do it? If you dream of trading for a living and turning your account into a money generating asset, rather than a source of frustration, then why not try us out for one month and see if we deliver? In fact, if you join after the 15 th of any month, we will give you until the end of the following month that s a possible extra 2 free weeks! Go on, give it a go. Visit now to find out more. We are there to help you! OUR 3 GUARANTEES OF QUALITY: 1. Verifiable results We know how hard it is to trust signal providers and to find the genuine performers out there. That s why, unlike most signals providers, our results are taken from a genuine broker s account, so you can see every entry and exit as it was traded live. 2. Money-back guarantee To make it easier for you to decide, if we don t make money during the calendar month you first join up in, and you don t wish to continue, we will immediately refund your subscription fee, no questions asked! 3. Advanced technology We are one of the only companies to provide signals via alerts, instant desktop alerts and even auto-trading, to ensure that you never miss a signal no matter what your computer setup or lifestyle.